Stocks sank in London on Friday after US president Donald Trump threatened to impose new tariffs on China over its handling of the coronavirus crisis.

The FTSE 100 index of Britain’s biggest listed companies (^FTSE) slid 2.3% in early trading. It marked a stark reversal of the rally over the past week as several European countries have reported falling infection rates and begun to ease their lockdowns. The FTSE 250 was also trading 2% lower (^FTMC).

Many leading stock exchanges in Europe, Asia and elsewhere were closed for labour day public holidays on 1 May, with trading volumes much lower. But several countries where markets remained open also saw Trump’s fresh escalation of US-China tensions dent investors’ confidence.

The Nikkei in Japan (^N225) shed 2.8% overnight, while Australian shares on the S&P/ASX 200 index (^AXJO) dropped 5% in their biggest fall in five weeks.

Futures pointed to a fall in US stocks on Friday. S&P 500 futures (ES=F) were trading 2.2% lower, Dow Jones Industrial Average futures (YM=F) were down 1.9%, and Nasdaq futures (NQ=F) dropped furthest, down 2.7%.

It comes after Trump warned late on Thursday that China’s handling of the virus was now a more significant priority for his administration than pre-crisis efforts to reach a new trade agreement, amid a long-running standoff.

The US president has accused China of spreading misinformation in the early stages of the pandemic, and even claimed on Thursday he had seen evidence the virus started in a Chinese lab. Other US officials have downplayed the latter claim, with the virus widely believed by experts to have emerged in a market selling wildlife in the Chinese city of Wuhan.

But the Washington Post reports US officials are starting to draw up plans to “punish” or demand compensation from China over the outbreak. The US newspaper reports some US officials even floated the idea of cancelling part of its debt obligations to China.

Asked about the claims, Reuters reports Trump told journalists: “Well, I can do it differently. I can do the same thing, but even for more money, just by putting on tariffs. So, I don't have to do that."

But Neil Wilson, chief market analyst at Markets.com, suggested the pandemic remained far more significant than such ratcheting up of tensions so far for investors. “Trade tensions back on the agenda won’t be terribly positive for risk appetite but for now remains something on the margins."

But he added that the US and Europe were likely to demand China “steps up,” adding: “If we talk about what permanent changes are taking place or what trends have accelerated sharply, then deglobalisation has to be at the forefront.”